SUMMARY ORDER

GARY L. SHARPE, District Judge.

Pending is the third motion of William J. Brown, as Receiver, (hereinafter "the Receiver"), for an order disallowing certain claims. (Dkt. No. 984.) For the reasons below, the motion is granted.

Frank H. Chiappone, William F. Lex, and Philip S. Rabinovich, (hereinafter "the brokers"), were registered representatives of defendant McGinn, Smith & Co., Inc., (hereinafter "MS & Co."). (Dkt. No. 985 at 1.)1 By way of the pending motion, the Receiver seeks an order disallowing or equitably subordinating the brokers' claims. (Id. at 1-2.)2 As discussed below, the Receiver later filed a supplement to his original motion. (Dkt. No. 1032). Before it was supplemented, the Receiver's motion was originally premised on factual findings made against the brokers in a decision by an Administrative Law Judge (ALJ) in a Securities and Exchange Commission (SEC) administrative proceeding. (Dkt. No. 985 at 1, 3-9.) The gist of the Receiver's argument was that "[the brokers] should not be permitted to share in investor recoveries after recklessly selling MS & Co. offerings to innocent investors in complete disregard of their duty owed to their customers." (Id. at 2.)

In the face of the Receiver's motion, only Chiappone filed a response in opposition. (Dkt. No. 995.)3 Chiappone's arguments concerned the ALJ's decision. (Id. at 2-11.) That is, he argued that the decision was on appeal to the SEC Commissioners, (id. at 2), and could be appealed to the Second Circuit, (id. at 11); the decision might be mooted by a Constitutional issue then before the Supreme Court, (id. at 2-3); and the decision was erroneous, (id. at 3-10). In a nutshell, Chiappone argued that he "was innocent of any unlawful conduct[] and . . . is entitled to the benefit of the doubt until all appeals are exhausted." (Id. at 11.)

As foreshadowed by Chiappone's argument, on June 21, 2018, the Supreme Court decided Lucia v. Sec. & Exch. Comm'n, 138 S.Ct. 2044 (2018), which held that SEC ALJs were subject to the Appointments Clause, and thus any defendant in an SEC proceeding who was tried before an ALJ not properly appointed was entitled to a new hearing, id. at 2055. Accordingly, on October 1, 2018, the SEC remanded the administrative proceeding against the brokers for reassignment to a new ALJ. (Dkt. No. 1032 at 5.) On December 21, 2018, the brokers and the SEC entered into an Order, (id., Attach. 1 (hereinafter "the SEC Order")), which stated that the brokers violated Sections 17(a)(2) and 17(a)(3) of the Securities Act, (Dkt. No. 1032 at 5 (citing the SEC Order at 5)).

On January 29, 2019, the Receiver filed a supplement to the pending motion to apprise the court of these developments. (Dkt. No. 1032.) The Receiver maintains that the brokers' claims should be disallowed or equitably subordinated based on the SEC Order, which contains findings "with regard to the [b]rokers' conduct [that] are similar to the [finding]s in the [ALJ's decision]—numerous red flags and ignoring the duty to investigate." (Id. at 7 (internal marks altered).) Chiappone did not file a response to the Receiver's supplement. The SEC filed a brief in support of the Receiver's motion on February 12, 2019. (Dkt. No. 1035.)

"[A] district court has extremely broad discretion in supervising an equity receivership and in determining the appropriate procedures to be used in its administration." F.D.I.C. v. Bernstein, 786 F.Supp. 170, 177 (E.D.N.Y. 1992); see Sec. & Exch. Comm'n v. McGinn, Smith & Co., 1:10cv-457, 2016 WL 6459795, at *2 (N.D.N.Y. Oct. 31, 2016) ("Courts have broad authority to craft remedies for violations of the federal securities laws[.]") (internal quotation marks and citations omitted). "It is within a district court's discretion to approve a distribution plan proposed by a receiver—and to defer to the receiver's choices for the plan's details—so long as the plan is `fair and reasonable.'" Sec. & Exch. Comm'n v. Amerindo Inv. Advisors Inc., No. 5-CV-5231, 2016 WL 10821985, at *3 (S.D.N.Y. May 20, 2016) (quoting Sec. Exch. Comm'n v. Wang, 944 F.2d 80, 81 (2d Cir. 1991)) (internal citation omitted).

The court agrees with the Receiver that the brokers' claims should be disallowed because of their conduct; the brokers should not be permitted to share in the recovery with the innocent investors who were harmed by that conduct. (Dkt. No. 1032 at 3.) The SEC Order states that the brokers, who "were among the top-selling brokers at MS & Co.," "violated Section[s] 17(a)(2) and (3) of the Securities Act by negligently failing to perform sufficient due diligence to form a reasonable basis for their recommendations . . . to their customers." (SEC Order at 5.) Specifically, disclosures were made that should have caused the brokers to conduct additional inquiries—including how customer money would be invested—before recommending the investments. (Id. at 6, 7.) Also, after being informed, in January 2008, that certain investments were in default, payments to investors would be curtailed, and the offerings would be restructured, the brokers continued to sell investments for MS & Co., despite "the accumulation of red flags since . . . September 2003." (Id. at 7.) In one instance, the brokers failed to check publicly-available information regarding the October 2007 Firstline Trust offering, the proceeds of which were loaned to a company that filed for bankruptcy. (Id.) After the bankruptcy filing, the brokers continued to sell Firstline Trust certificates. (Id.) As part of the SEC Order, Chiappone, Lex, and Rabinovich were ordered to disgorge $23,329, $72,726, and $53,029, respectively, which were the amounts of their commissions during the relevant limitations period. (Id. at 8, 9.)4

District courts have discretion to exclude claimants involved in the underlying fraudulent scheme. See Sec. & Exch. Comm'n v. Byers, 637 F.Supp.2d 166, 184 (S.D.N.Y. 2009). In Sec. & Exch. Comm'n v. Pension Fund of Am. L.C., 377 F. App'x 957, 963 (11th Cir. 2010), the Eleventh Circuit upheld the rejection of a claim by a sales agent who was among those "responsible for recruiting the investors who ultimately suffered losses due to the [scheme]'s fraud" and received "commissions . . . derived from the funds of investors who were victimized by the fraudulent scheme." In another case, a district court excluded an individual who "was more intimately involved with [the scheme] than the vast majority of clients and [whose] activities extended to marketing and solicitation on [the scheme]'s behalf." Sec. & Exch. Comm'n v. Merrill Scott & Assocs., Civil No. 2:02 CV 39, 2006 WL 3813320, at *12 (D. Utah Dec. 26, 2006); see Sec. & Exch. Comm'n v. Enterprise Tr. Co., No. 8 C 1260, 2008 WL 4534154, at *3, *7 (N.D. Ill. Oct. 7, 2008) (approving receiver's proposal to exclude individuals who, among other things, induced clients and violated state laws). In a recent decision, a district court surveying the case law discerned that "it would be inequitable to permit a person whose active misconduct or unlawful activity resulted in harm to investors to recover through a distribution." Sec. & Exch. Comm'n v. Bivona, Case No. 16-cv-1386, 2017 WL 4022485, at *13 (N.D. Cal. Sept. 13, 2017) (internal citations omitted).

In this case, the brokers' violations of the Securities Act—ignoring numerous red flags and failing their customers on their way to becoming some of the top-selling brokers at MS & Co., (SEC Order at 5, 6-7, 8, 9)—are sufficiently similar to the misconduct in the cases above to merit approving the Receiver's recommendation of disallowance. Moreover, after responding to the Receiver's initial motion and focusing on the ALJ's decision, (Dkt. No. 995), Chiappone did not respond to the Receiver's supplement. The court is left with the Receiver's well-reasoned arguments, which no longer rely on the ALJ's decision that Chiappone found fault with,5 (Dkt. No. 1032 at 5-8), as well as the SEC's similar arguments in support of disallowance, (Dkt. No. 1035 at 1-7)6; cf. Byers, 637 F. Supp. 2d at 175 ("The SEC's judgment is entitled to deference from this [c]ourt.") (internal citation omitted). In short, the Receiver's proposed disallowance is fair and reasonable. Cf. Amerindo Inv. Advisors Inc., 2016 WL 10821985, at *3; Byers, 637 F. Supp. 2d at 184.

Accordingly, it is hereby

ORDERED that, upon the third motion of William J. Brown, as Receiver, for an order disallowing certain claims (Dkt. No. 984); and notice of the motion having been given to the Securities and Exchange Commission, each of the brokers listed on Exhibit A to the motion (Dkt. No. 984, Attach. 2), Kathleen Lex, and Kimellen Lex, by first class mail, and all parties who have filed a Notice of Appearance in this action by ECF, and all creditors of the McGinn, Smith entities and other parties in interest via the Receiver's website, which notice is deemed good and sufficient notice; and the court having deemed that sufficient cause exists, the motion is GRANTED; and it is further

ORDERED that each of the claims listed on Exhibit A to the motion (Dkt. No. 984, Attach. 2) is disallowed; and the rights of the Receiver to object on any other basis to the claims of all investors or claimants is expressly preserved; and it is further

ORDERED that Rabinovich's request for redaction (Dkt. No. 1040) is DENIED; and it is further

ORDERED that the Clerk provide a copy of this Summary Order to the parties.

IT IS SO ORDERED.